D'Arcy, E. and Tsolacos, S. (2000), "Property research in Europe: moving forward through engagement", Journal of Property Investment & Finance, Vol. 18 No. 3. https://doi.org/10.1108/jpif.2000.11218caf.001Download as .RIS
Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
Property research in Europe: moving forward through engagement
Property research in Europe: moving forward through engagement
Éamonn D'ArcyThe University of Reading, UK, andSotiris TsolacosJones Lang LaSalle, UK
The views expressed in this discussion do not reflect those of Jones Lang LaSalle. The authors are grateful to Professor Neil Crosby, of The University of Reading, for comments received on an earlier draft.
In June 1999, the European Real Estate Society (ERES) held their 6th annual conference held in Athens, Greece. The conference was jointly organised by the Centre for Spatial and Real Estate Economics at The University of Reading and The Panteion University of Social and Political Sciences in Athens.
The Athens conference built on the success of previous conferences and marked a significant watershed in the development of real estate research in Europe. Participants from over 20 countries attended and the overall quality of the papers presented was very high. Major themes included housing market analysis, property investment and valuation, the quantitative analysis of commercial markets, the institutional analysis of commercial property markets, and developments in real estate education. A doctoral session also took place with contributions from seven doctoral candidates. For the first time ever at an ERES conference panel discussions were held bringing together in the same forum the views of both researchers and practitioners on key issues affecting the real estate industry.
The five papers contained in the special edition reflect a variety of strands of real estate research. Two papers fall within the realm of housing research. This area of property research has a longer and more established tradition, reflecting both the superior quality and wider availability of residential property data combined with long standing public policy concerns about the functioning of the housing markets.
The paper by Des Rosiers, Theriault and Villeneuve, examines the importance of access and neighbourhood factors on residential property prices using a hedonic methodology. The second paper by Taltavull de La Paz considers the pattern of the residential building cycle in different geographical areas and their linkages with the national cycle.
The remaining three papers included in this volume examine aspects of the commercial property market. Two of the papers are explicitly quantitative in character providing an empirical examination of rent determination in commercial property markets (White, MacKay and Gibb) and an evaluation of rent forecasting methodologies (Chaplin). The third paper examines empirically the influence of differences in corporate structure on the capital structure decisions of property companies (Ooi).
The discussion that follows provides some thoughts on the changing context within which future property research will take place and outlines the principle challenges posed for the development of property research in Europe. In particular, this discussion highlights the requirement of understanding the changes that are taking place in the nature of research provision. Furthermore, the need to improve research linkages between the nexus of disciplines involved in both the production and consumption of property research is stressed.
Over the last three decades considerable changes have taken place in the characteristics of research providers in Europe. Considering first research provision in the academic world, until recently the study of real estate as an academic discipline in Europe was largely confined to the UK and Ireland with some exceptions such as The Netherlands and Sweden. However, even in the UK it is only recently that the academic discipline has become underpinned by traditions of research rather than practice. In the continental European context strong research traditions exist in property-related areas such as urban and regional economics, regional science, urban planning, housing, architecture and civil engineering. However, while many of these traditions examine aspects of property market activity the analysis of real estate has not been an explicit research goal.
A number of factors have acted to change this situation. First, academic researchers in Europe from a variety of disciplines have become more aware of the potential of real estate analysis as an academic research goal. This has been assisted through the creation of a greater number of academic outlets for quality real estate research in terms of journals combined with significant improvements in the dissemination of real estate research findings and methodologies through participation in organisations such as the American Real Estate Society (ARES), the American Real Estate and Urban Economics Association (AREUEA) and the European Real Estate Society (ERES). In the UK context developments like the ''research assessment exercise'' have also been important in shifting the focus of real estate educators from practice towards research. Similar developments are now also taking place in The Netherlands and Spain. Second, the development of business education in Europe has acted to bring new disciplines, particularly in the areas of finance and management to consider problems posed by real estate. Third, attempts by professional institutions such as the Royal Institution of Chartered Surveyors (RICS) to become international and promote standards of property education and professional practice have acted as a catalyst to the development of real estate education in some European countries with consequent implications for research. Finally, the greater availability of both public and private sector funding for academic real estate research has further consolidated these trends. In particular, the increasing perception of property as a core concern in the context of urban regeneration and city competitiveness has been a significant driver of such funding. Also, in some countries, better interaction between real estate academics and both private sector providers and users of research has been important in unlocking new sources of funding. These factors have all combined to legitimise real estate as an academic discipline in Europe and thereby establishing the basis of an academic real estate research environment.
Turning to consider private sector providers of research, this group comprises of the large real estate service providers and the research departments of investing institutions. Traditionally, this community has concentrated on providing market commentaries with some supporting data analysis. In most cases these provide current snapshots of the market without any attempt to link them explicitly with past events or future prospects. At the outset it is important to remember that when making judgements about this group, their context of operation, unlike the previous group, is governed by concerns of client confidentiality and firm specific intangible assets; for example, key sources of market information. Consequently the output of more sophisticated analysis will not be incorporated in their publicly available research outputs. As a result it is inevitable that a significant proportion of their research output will remain outside the public domain.
However, as in the case of academic-based research, certain forces have prompted change in this group's approach to property research. These have a number of origins some of which are related. First, the negative market experience of clients and the investing institutions themselves during the early 1990s in the UK, US and elsewhere, resulted in new requirements for more sophisticated advice in many cases supported by quality research. In particular, the evolution of due diligence services in the USA provides a case in point. Moreover, the shifting requirements of clients reflected in the expansion of corporate real estate and investment-related services have necessitated the development of new research capacity. This trend has been reinforced by the general shift towards higher value-added activities in the product composition of the large real estate service providers.
Second, the internationalisation of real estate services has exposed European firms to new business cultures of real estate. Many of these cultures, especially those from the USA, have a much stronger tradition of service products underpinned by research than that which previously existed in continental Europe or even in the UK. A considerable crossover with the academic world has shaped private sector research traditions in the USA. For example, many private sector research teams are now led by well-established former academics that have made significant contributions to the development of real estate research as an academic discipline. Recent research appointments in the UK have begun to reflect a similar trend. US private sector research output is regularly published in academic journals reflecting the acceptance of such activities as a signal of research quality by both the private sector themselves and, more importantly, by their client base. In addition internationalisation has in many cases shifted the product composition and functional structure of real estate service firms and by implication created new research requirements particularly in the area of property investment.
A third factor, again related to internationalisation, has been the movement of global generalist professional business service firms and specialised financial services providers into the market for real estate services. In order to compete with the research services offered by these firms, real estate service providers have to offer clients more sophistication and rigour in their analysis. Finally, the number of public forums available to private sector researchers to disseminate their findings has increased. While traditionally these have included the property press and journals many new vehicles for public research engagement have emerged. These range from the creation of societies of property research in many European countries to pan-European forums like the ERES itself. These developments have all helped to raise the profile and importance of the private sector research function and greatly facilitate exposure to new thinking. Again in line with the academic experience the context of private sector research has also seen significant changes.
As outlined in the above discussion, significant changes have taken place in both the academic and private sector property research environments in Europe. Despite this apparent progress, property research in Europe is still in its early stages of development particularly as compared to the USA. Therefore, it is important to consider what developments are necessary to advance the case of real estate research in Europe. While the changes which have taken place have opened up many new forums of research dissemination, the European research community and its user constituency still lacks the type of engagement which is so characteristic of its counterpart in the USA. As a consequence, to move the European agenda forward it is essential to create vehicles, which facilitate the development of appropriate linkages between the actors in the sector. Given the complexity of both real estate problems and the decision-making processes involved, the focus for real estate analysis must be widened, and for this to be achieved better linkage is a necessary prerequisite.
Linkages can be viewed at a number of levels. Starting first in the academic context, as noted previously, many established academic traditions in Europe have the potential to contribute to the development of real estate research. However, currently these resources are not harnessed. Researchers in real estate may ignore relevant research findings from related disciplines such as urban economics and planning and vice versa. Therefore, the first challenge is for the academic real estate research community to build bridges with related academic disciplines. This process of engagement yields benefits in terms of bringing new perspectives and methodologies to bear on real estate problems. On a practical level this might be achieved through the placement of appropriate research in journals that reach a more generalist audience across property-related fields with a parallel process taking place in the dissemination of results in appropriate non-real estate specific public forums.
In the context of the private sector the necessity of better linkage is again apparent. However, in this context concerns about client confidentiality and perceptions of competition are likely to inhibit such developments particularly between firms. Nevertheless, firms in order to be more efficient providers of real estate research and thus better service client demand need to develop effective strategies for linking the increasingly necessary multidisciplinary research function within their firms. In many cases research teams focusing on particular sectors would benefit from closer internal research dissemination. This is particularly true in firms that now find themselves producing new research-intensive service products without having fully thought through the research resource base for such developments. Also, internal mechanisms for research training and exposure to a greater variety of methodological standpoints would seem a further internal linkage likely to bring benefits. At a wider level, engagement with similar firms in the sector or indeed new entrants to the sector in appropriate public forums may again yield significant benefits particularly in terms of building methodological consensus in the analysis of common problems. Again the protection of perceived competitive advantages may inhibit this process. The recent movement in Europe and elsewhere towards closer collaboration in real estate services through a variety of new organisational arrangements may indirectly bring benefits in this regard. Although at the moment the principal motivation for this collaboration is not purely research-oriented it nevertheless will provide a potential basis for greater research collaboration.
A third level of linkage and one that is likely to bring significant benefits to all participants, centres on the development of appropriate engagements between the academic and the private sector research communities. In some European countries the institutional framework for such linkage has begun to evolve while in others significant barriers still exist. In the UK, while in theory there has been a notable interaction between academics and the private sector in recent years, the benefits of this process have largely not been maximised by either side. In many respects it has been a one-way engagement in which academics provide pre-defined consultancy services to the private sector with neither side fully engaging in common thinking nor learning. A key problem in the context of developing such linkages relates to data provision. Private sector firms regard their data as a key strategic asset and source of competitive advantage. Consequently, there is unwillingness on their part to place it in the public domain through academic or other collaborations. This one issue is a key constraint on research engagement and the wider advancement of property research. For this situation to improve it requires a more proactive stance on behalf of the academic community in convincing the private sector that the benefits of data release outweigh the costs, with the resulting research adding to the firms competitive advantages rather than reducing them. Other problems centre on the conflicts arising from the issue of confidentiality in the private sector and on the academic side the problems generated by different long-term research goals in terms of academic publications rather than digestible practice relevant research results. Moreover, the less than entrepreneurial approach of many academics combined with the unwillingness of firms to developing linkages may further inhibit interactions.
However, recent developments have gone some way to facilitating better engagement. For example, ERES itself has provided the first pan-European forum for such interaction. Other examples include the European conference of Investment Property DataBank, the recent establishment of the RICS Research Foundation and national-based initiatives like the RICS Cutting Edge conference and from the academic side the development of the Property Economics and Finance Research Network (PEFRN) in the UK. Other developments include the emergence of new forms of research entity combining both academic and private sector skills; for example, KTI in Finland, the integration for the first time of well-established real estate academics within the research departments of leading firms and the creation of more tangible links between academic institutions and leading practitioners in the form of visiting professorships and research affiliations.
Finally, the last and most important level of linkage involves the creation of an appropriate dialogue between research providers and research users both in the private and public sectors. For the creation of a truly holistic real estate research environment in Europe, user input is essential. In the case of private sector research providers such inputs inevitably exist in the form of client service provider relationships. However, in some circumstances such relationships might inhibit research advancement through engagement as providers guide users towards research products they can deliver rather than the type of product that the user had initially required. In terms of the academic research community the picture on user engagement is more variable, ranging from well-developed networks of linkages in some cases, to a total absence in others. Again what is required is the development of appropriate institutions through which provider-user engagement can take place. Because of the type of problem outlined above, exchanges must take place in the public domain, thereby ensuring that users assess their research requirements from the perspective of near full knowledge rather than from what can be at best be a partial and potentially biased viewpoint. Again the type of institutional developments outlined previously should serve to facilitate appropriate interaction between providers and users. For these institutions to work, users need to be convinced of the benefits from participation and that any potential benefits, which emerge, are sufficient to justify the time commitment involved. A further determinant of success rests with the simple issue of making users aware of the existence of such forums.
This discussion has examined the changing context of property research provision in Europe and from that made a case for better engagement as a necessary way forward. It is only through such exchanges that the property industry can ever hope to understand the potential implications for use, investment and development decisions of the significant structural changes that are taking place in both local and global economies on a daily basis. The benefits of greater engagement on issues that affect the property market can be illustrated with reference to a number of examples, such as the effect of information technology on city centre offices. In this case the initial speculative and tentative approaches to discuss these effects gave way to well-documented research that involved both practising professionals and academics from different fields. Likewise, the current debates taking place about the property implications of e-commerce and the impacts of the Euro on European property markets provide further cases in point, which would benefit from greater engagement.
While all the institutional developments, which facilitate engagement, are to be welcomed, their ultimate success depends on active participation. This requires in many cases a fundamental change of research culture from one of isolation to one of engagement by practitioners, academics and users alike. This is an essential process of communication and learning with all sides willing to be explicit at the outset as to their expectations from engagement. The experience of active engagement in the USA highlights the potential benefits to be gained by all. Those already convinced of the benefits of engagement will inevitably participate; however, the challenge remains in convincing those who are at best sceptical and in many cases hostile to the notion. In the European context, organisations like ERES can potentially play a very important role in providing the necessary institutional framework for engagement and consequently as a matter of urgency it must rise to the challenges involved.